Once the amount is properly reflected in the ledger as outstanding and payable, the Statute of limitation begins on the following date

National Seeds Corporation Ltd Vs National Agro Seeds Corporation
FAO(OS) (COMM) 69/2022 & CM APPL. 14275/2022
Hob’ble Delhi High Court

Dated 31st May,2022

Hon’ble Delhi High Court Held That: Once the amount is properly reflected in the ledger as outstanding and payable, the Statute of limitation begins on the following date.

BRIEF FACTS

1. The Uttar Pradesh government had announced several farmer subsidies schemes.

2. National Seeds Corporation Ltd. (Appellant) is a government of India undertaking that was required to supply the seeds to the farmer at a 50% subsidized price and receive the remaining 50% from the government of Uttar Pradesh.

3. As a result, the appellant and the respondent entered into a dealership agreement on October 24, 2009, for the supply of seeds to the farmer.

4. The respondent had agreed to sell certified seeds of approved varieties at the subsidized price in exchange for a trade discount.

5. As a result, it invoked the agreement's arbitration clause, and the dispute was referred to arbitration.

6. The arbitral tribunal granted the respondent's claims while rejecting all the respondent's counterclaims.

7. As a result, the appellant filed an objection under Section 34 of the Arbitration &Reconciliation Act, 1996, which was also denied by the Single Bench in an order dated January 5, 2022.

Section 34 in THE ARBITRATION AND CONCILIATION ACT, 1996

Application for setting aside arbitral award. 

(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if—

(a) the party making the application furnishes proof that—
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.

Explanation. —Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.

8. As a result, the appellant filed an appeal against the order dated 05.01.2022 under Section 37 of the Act.

9. The appellant challenged the order dated January 5, 2022, as well as the arbitral award on the following grounds:

i) The respondent's claims were ex-facie barred by limitation because they related to subsidies from 2010 to 2014, and the statement of claim was filed in 2018. The 3-year period apparently expired prior to the filing of the statement of claim, so the arbitrator and the Ld. Single Judge erred in allowing the claims. Because the appellant refused to acknowledge its obligation to pay, the statute of limitations was never extended.

ii) The respondent's right to a trade discount was conditional on the government paying the subsidy amount.

10. ANALYSIS BY THE COURT: The Court referred to various letters sent by the appellant to the respondent in which the respondent acknowledged its obligation to pay the trade discount.

11. The Court ruled that the arbitral tribunal was correct in concluding that the aforementioned notices constituted a "promise to pay" under Section 25(3) of the Indian Contract Act.

SECTION 25(3) OF INDIAN CONTRACT ACT, 1872

It is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits. In any of these cases, such an agreement is a contract.

• Explanation 1.- Nothing in this section shall affect the validity, as between the donor and donee, of any gift made.
• Explanation 2.- An Agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be considered by the Court in determining the question whether the consent of the promisor was freely given.

12. The court here acknowledged debt as well as the debt being within the limitation period. The court laid emphasise on the scope of intervention in an appeal under Section 37 of the Arbitration and Conciliation Act of 1996.

Section 37 in THE ARBITRATION AND CONCILIATION ACT, 1996

Appealable orders.

(1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:—
(a) granting or refusing to grant any measure under section 9.
(b) setting aside or refusing to set aside an arbitral award under section 34.

(2) An appeal shall also lie to a Court from an order granting of the arbitral tribunal.—
(a) accepting the plea referred in sub-section (2) or sub-section (3) of section 16; or
(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.

13. Furthermore, the Court held that the arbitral tribunal was correct in applying Section 18 of the Limitation Act when the appellant admitted the amount due to the respondent as outstanding in its book of accounts/ledger and the period of limitation would be extended from the date of such acknowledgment, and thus the respondent's claims were within limitation.

SECTION 18 IN THE LIMITATION ACT, 1963

Effect of acknowledgment in writing.

(1) Where, before the expiration of the prescribed period for a suit of application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.

(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.

Explanation.—For the purposes of this section,—

(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;

(b) the word “signed” means signed either personally or by an agent duly authorized in this behalf; and

(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.

14. The Court also observed that the Arbitral Tribunal determined, in accordance with Clause 8 of the Agreement, the trade discount disbursed would be recovered if it was determined that the respondent had breached its obligations to supply the seeds in the notified districts.

15. The Arbitral Tribunal's decision is without flaw.

16. The Court rejected the appellant's argument that the payment of the trade discount was contingent on the government's payment of a subsidy to the appellant because there was no provision in the agreement for such a contingency.

17. As a result, the Court dismissed the appeal. The Court went on to say that a letter in which a party explicitly admits the amounts due and payable is a "promise to pay" within the meaning of Section 25(3) of the Indian Contract Act.

CONCLUSION

It is a well settled fact that once a disputed liability has shown in the financial statement of a company as outstanding, the limitation period will again begin from the date next to the date of such acknowledgement. It means that the date on which books of accounts signed by Board of Directors of the company.

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